Sky Deutschland: “Textbook results”

The market praised Sky Deutschland’s results (announced May 7th) which “confounded market worries” according to Berenberg Bank, and were “positive….[and].. confident” according to Morgan Stanley.

There was praise for Sky Deutschland’s dramatically lowered churn, helped by the company’s two-year contracts now in place for many subscribers. However, Sarah Simon of Berenberg Bank said the quarterly annualised Churn rate (of 8.8 per cent, down from 11.3 per cent) was also a reflection of better quality subscribers. “The underlying quality of the new customers that was better, plus, presumably, greater satisfaction among the existing customer base. It was this combination, largely, that drove the improvement in churn,” said the bank.

“Sky Deutschland remains a rare example of structural growth within European consumer media. Execution is strong, and the market opportunity substantial. With likely future upgrades from refinancing, and new revenue opportunities, plus the potential for industry consolidation, we reiterate that this is a key pick for us in the sector.”

Morgan Stanley’s note to clients echoed these points, and talked about CEO Brian Sullivan’s “firm reiteration” of the broadcaster’s 400,000-450,000 net new subs this year. The bank said: “The message was that the company is in line for all of its guidance, will see churn fall further as the year goes on, has a yawning opportunity in pay TV in Germany and expects to repeat its c400,000 – 450,000 net adds in 2015 and beyond. Financing is in place, and the cost of debt should fall in 2015 as facilities are renegotiated. SkyGo goes from strength to strength, and Sky Deutschland is seeing no negative impact on its growth or opportunity from the development of OTT services in Germany.”

Sky Deutschland saw a 3.5 per cent rise in its share price on May 7th, and a further 2.28 per cent rise in early trading on May 8th, taking its share price to €6.51.